It is a simple truth, if you are going to successfully grow your business you will need to establish credit but you may not know that there are ways that you can create and build your business credit profile.
It is a simple truth, if you are going to successfully grow your business you will need to establish credit. While sole proprietorships and partnerships will always rely on the personal credit of the owners, corporations and LLCs will establish separate credit histories. It may seem obvious that a credit record is generally based on a long term, positive payment history with vendors; but you may not know that there are ways that you can create and build your business credit profile.
First, you should be aware there are multiple services that keep business credit data and you can find out if your company is being reported here:
Do you have a DUNS number? In order to establish business credit, start with ensuring that you have a D&B DUNS number. This system is used worldwide as the standard business identification system. Many companies and the Federal Government require you to be registered with D&B in order to contract with them.
While Experian and Equifax allow you to review profile information, D&B helps you to do a more comprehensive update of company information at no cost using their free Company Update service. Having a complete profile will add credibility for anyone pulling your file. While you are at it, go ahead and register for their free Credit Signal product to alert you to changes with your D&B credit file.
Are your trade creditors reporting? The key to having a strong credit profile is numerous positive trade references. Some companies report all of their trade credit experiences but many do not. If you do not have at least four trade references being reported, you should consider D&B’s Credit Builder (at a cost) to have D&B contact your trade creditors to request payment history and include it as part of your file. Don’t forget to consider accountants, attorneys, staffing companies, chambers of commerce, cleaning services, waste management companies, etc.
The key to having a strong credit profile is numerous positive trade references.
With numerous trade references you will have a strong credit profile, so take advantage of it. Unlike personal credit there is no downside for having and using trade credit with your vendors. The more credit you’ve been extended the stronger your profile will be. Ask for an increase in credit line or terms with vendors who automatically report trade histories. Move on to your other key suppliers and request credit or an increase in terms. Speak with the credit manager and explain to them how extended terms will benefit your mutual relationship.
Beyond trade references, there are other things you should keep in mind to have a strong credit profile.
Revolving Lines of Credit. If you’re using a traditional bank line of credit, be sure that you don’t regularly reach the limit or leave a high balance. Actively use the line, paying it down when you receive cash and drawing it up when you pay bills. If you are regularly using more the 60-70% of the limit, request an increase to an amount that is twice what you normally will have outstanding.
Equipment Finance. Instead of paying cash, consider financing that piece of equipment either from the vendor or through a bank. The equipment finance departments of many banks are willing to extend terms that can be more favorable than those provided by equipment vendors with only slightly more effort.
Business Credit Cards. Because most small business credit cards rely on the personal credit history of the authorized officer, this is one way to leverage your strong personal credit into business credit history. Using a personal credit card or funds to make business purchases will mean less credit history for the company, so don’t do it.
Financial Statements. Finally, if numbers aren’t your strong suit, invest in a bookkeeper to be able to prepare timely and accurate financial statements. While it is rarer for your trade creditors to request financial statements, it is commonly requested for other types of financing such as real estate, SBA financing and some types of bank financing.
Using these tips will show the world that your company honors its commitments and is worth the risk of extending additional credit when needed.